Entries in Real Estate
(28)

The Federal Housing Administration is apparently readying changes to its controversial condominium rules that have rendered large numbers of units ineligible for FHA financing. It appears that the revisions could remove at least some of the obstacles that have dissuaded condominium homeowner association boards from seeking FHA approvals or re-certifications of their projects during the past 18 months. Under the agency’s regulations, individual condo units in a building cannot be sold to buyers using FHA insured mortgages unless the property as a whole has been approved for financing.

Recently the FHA’s rules have become overly strict. Barely 25 percent of all condo projects that are potentially eligible for FHA financing are now approved.

The largest restrictions imposed by FHA include non-owner occupancy rules requiring 50% of the units in a project or building be non-owner-occupied, and the FHA rule that requires that 85% of the units be current on their dues. FHA also sets a cap of 25 percent of the total floor space in a project for commercial use and has a very controversial rule which creates severe legal liabilities for condo board officers including personal liability and criminal responsibility.

FHA is expected to clarify the personal liability language and make other modifications in its forthcoming rules. Time will tell if the rules will encourage condominium boards to apply for approval by FHA.

Standard & Poor’s Rating Services, one of the most well respected forecasters, has indicated that it will take 46 months to clear the market’s supply of distressed homes, or the shadow inventory. This estimate is down from the 47 month liquidation timeline determined in the fourth quarter of 2011. While these figures obviously indicate a very high volume of foreclosed properties, the figures do indicate that the liquidation rates appeared stable over the first three months of this year.

Of course regional variations in how quickly servicers can clear the backlog of nonperforming loans are primarily due to differences in foreclosure procedures. Georgia and Tennessee are non-judicial foreclosure states, meaning that a foreclosure can occur without the lender filing suit against the debtor. Most experts think it takes two and a half times as long to foreclose property in a judicial foreclosure state.

The shadow inventory includes all outstanding properties on which the mortgage payments are 90 or more day’s delinquent, properties in foreclosure, and properties that are already owned by the banks. The shadow inventory as calculated by S&P also includes 70 percent of the loans that became current, or “cured,” from 90-day delinquency within the past 12 months because S&P says these loans are more likely to re-default.

Bank of America said Thursday that it would no longer sell new mortgages to Fannie Mae.

This is the latest news in the continuing saga of what role the mortgage giants Fannie Mae and Freddie Mac will play in this country’s residential housing future, and is the latest news in the fight over how many defaulted mortgages Bank of America will have to buy back from Fannie Mae because the original loans had not conformed to proper underwriting standards.

In mortgage circles this is huge news. Bank of America was Fannie Mae’s third-largest provider last year and the bank originated $156.1 billion in mortgages last year of which $37.7 billion were sold to Fannie Mae.

Meanwhile, Fannie and Freddie face questions over what role they will play in the housing market. On February 21st the Treasury Department’s new housing reform report was issued, and the report concluded that Fannie Mae and Freddie Mac must be eliminated - period.

Of course if Fannie Mae and Freddie Mac are eliminated most economists expect that average interests would increase and that it would be harder to obtain a traditional 30 year fixed rate mortgage.

The Consumer Financial Protection Bureau released its second round of alternative prototypes of a settlement disclosure form to be used during closing to replace the current HUD-1 and Truth in Lending disclosure.

Last month, the CFPB tested two prototypes for a disclosure of final loan terms and closing costs. They were both similar. This time around, the CFPB created a different format for this information which are much longer. The current disclosures can be viewed online and are two different formats in five page drafts called Mimosa and Sassafras are available on the CFPB website.

The Consumer Financial Protection Bureau (CFPB) recently released its fifth version of the draft mortgage disclosure form comparing a fixed-rate loan and an adjustable-rate loan. The CFPB said it will test this version of the disclosure with consumers, and consumers are invited to go to this page to enter comments on the proposed form: ”Know Before You Owe". It appears that the Bureau will finalize this form which combines the Truth in Lending form and Good Faith Estimate form in the very near future.

The CFPB has indicated it will release the first draft of a revised HUD-1 before Thanksgiving. The last revision to the HUD form, which was effective on January 1, 2010, completely changed the form from a 2 page form to a 3 page form and is very unpopular in the industry.